Portfolio manager sets out to dispel myths and misconceptions around liquidity, risk, and more in new report
There are several factors that might turn an investor off from putting capital in real assets – and as a new report argues, those reasons tend to be heavily exaggerated.
In a report titled Top Five Myths of Investing in Real Assets, Willis Towers Watson portfolio manager Christy Loop took aim at some widely and wrongly held assumptions that hold investors back from real asset investment.
As reported in Institutional Investor, the first myth asserts that all unlisted assets are illiquid. But as Loop clarified in her report, many unlisted strategies in real assets provide regular liquidity and transparency, though they do require periodic withdrawals and specific periods of advanced notice.
“If you think about the unlisted core or direct real estate, typically, from a transparency basis, you’re pretty well informed in terms of what your sector exposures are,” Loop told Institutional Investor, noting that the core groups within the real estate investment space – office industrial, retail, and apartments and multifamily – have not evolved much over time. Infrastructure, she added, tends to not vary too much over time as it consists of “hard assets.”
While many might think real assets aren’t useful in actively managing liquidity, the report pointed out that real asset opportunities come in many flavours and stripes. A multi-manager fund focused on real assets, Loop noted, can allow investors to cut down contribution queues and get access to transactions in the secondary market, putting capital to work more quickly.
The second myth Loop cited in the report is also related to liquidity: the idea that liquidity can’t be actively managed with real assets. This assumption, according to Loop, ignores the diversity of real assets opportunities. With a real assets multi-manager fund, she said investors can cut down contribution queues and get access to transactions in the secondary market to put capital to work more quickly.
Third on Loop’s hit list of myths was the notion that real estate and real assets can’t generate returns in a crisis or recessionary environment. That scepticism ran rampant in 2020, when the COVID-19 pandemic crisis pummelled returns across the U.S. real estate space, with only industrial real estate posting returns of over 20%.
To challenge that doubt, the report pointed to “alternative property types, like healthcare, senior and student housing, and social infrastructure,” which it said are “less economically sensitive.” Other relatively unrecognized drivers of value include essential technology, data infrastructure, life sciences, and renewables and energy efficiency assets.
The fourth misconception, shared by many pension funds, was that investing outside their peer universe exposes them to risk. This belief, Loop told Institutional Investor, may push investors to overly concentrate their opportunities. The way to go, the report recommended, was for investors to diversify their real asset investments beyond traditional sectors.
Finally, there’s the belief that all real assets are expensive. That thinking, Loop asserted, reflects an excessive emphasis on fees that ignores their potential to enrich the portfolio ecosystem they’re being introduced into.
“It really should be viewed in the sense of ‘how much return am I generating from this investment? and/or ‘how does this increase the overall efficiency of my real asset segment and my portfolio, once I take expenses into account?” she said.
